NEVER-ENDING CYCLE OF DEPRESSED AND LOW GROWTH – Right now, with growth slowing and the economy uncertain, the influential and assertive World Bank (WB) has again urged the country’s finance managers and economic planners to improve management of funds and raise new taxes. But with the country’s present strained economy, even a minor raise in taxes are the stuff of both idle chit-chat and intense intelligent debate.The WB insists that even if the economy isn’t really crushing, the Philippines still needs additional assets to beef up its capability to take advantage of new growth opportunities. Still, the WB stressed that the country, along with a few developing economies in the Asian region, has to invest in technology, projects and programs that will boost domestic productivity.
Within this framework, the WB is highly confident that higher productivity would in turn help the country service the growing need for various goods of other well-developed countries. However, that is a lot easier said than done. While it is widely believed that higher productivity spurs increased consumption and likewise requires increased production, and more jobs, labor productivity has drastically declined due to lack of job opportunities.
Mindful that uncertainties raise the possibility of continued post lackluster growth in the US and Europe in the wake of the previous global recession, the WB expects that the Philippines and its neighbors in the Asian region can boost growth by intensifying regional trading activities. Nevertheless, another important step following the post economic meltdown in the US and European economies, the country, according to the WB, must take advantage of the situation by shifting from being export oriented to boosting income through domestic sources.
Such a move by few countries in the region could at least be considered by the Philippines as a growth opportunity, the WB said in its economic report. Some of our neighboring nations are seen to require more imported goods needed to boost their domestic production and the country should take advantage of the situation by selling more intermediate goods to them, including the well-developed nations.
Although the country’s export industries have slowly redefined competitiveness and economic advantage worldwide, its far-larger domestic sector- agriculture, has languished. One glaring example is the recent banning of world-class Philippine Cavendish bananas by China due to strict phyto-quarantine requirements and other stringent barriers to the detriment of our local producers and exporters. The situation has spurred a never-ending cycle of depressed and low growth.
Now let’s go back to the tax hike suggested by WB. Is increasing taxes through the dictation of the WB a quick solution and advantage to the so-called new growth of opportunities? Can the Philippines still be regarded as a haven for investors with a looming tax hike? From the point of view of an investor looking for a safe haven, raising taxes on WB’s terms certainly signals that considerable amount would be set aside for additional taxes, thus their earnings will be greatly affected as well. It will be expected – but not certain – that the taxpaying public, notably the business sector, will accept the WB tax hike scheme.
Surely, the government will be on shakier ground when it realizes the implication of the WB proposed tax increase. It has genuine economic concerns and few in the business sector think a new round of tax hike will do much good. If the government wants to attract entrepreneurs to invest in high technology projects as desired by the WB to boost domestic productivity, then the most important thing for government to do to be able to establish that is to have a well-educated workforce and to make sure our strategic trade controls are reliable.
Perhaps, inevitably at this stage there’s more emphasis on providing the basic needs of the people and less emphasis on tax increases. The Philippines has been going through a socio-economic and political crunch and a new tax hike, probably the World Bank’s own “modest way” to help the country, is either part of the solution or part of the problem.
